GMO Labeling: A Case of Asymmetric Information and the "Nudge"
Keywords: genetically modified organisms, GMO, labeling, asymmetric information, nudge, singaling, market failure, behavioral economics
AbstractFrom their introduction in the late 1990s, foods containing genetically modified organisms (GMOs) have sparked debate among advocates and policymakers. To correct information asymmetry inherent in the current system of selling genetically modified (GM) and non-GM foods alongside each other with no consistent signal of quality across food products, many have suggested—and the European Union and Japan have implemented—labeling regimes. This paper takes the position that consumers’ empirically supported desire (for reasons ranging from nutritional to religious) to avoid GM goods substantiates a market failure resolvable through information provision. Then, it examines labeling through Akerlof’s “Lemons” model and the behaviorist concept of the “nudge.” It concludes that mandatory labeling would maximize social welfare, enabling informed purchasing for all consumers (not only those who shop at more expensive grocers initiating private labeling). Finally, the paper discusses labeling regime implementation—including label design, product purity baseline setting, administration, and consequences.